When running a business of any size, there is an ebb and flow of finances that must be maintained. This is particularly true for money leaving the company. Spending should be controlled at all times because smart management of expenses leads to faster business growth.
This article will discuss the importance of intelligent spend management, the risks of poor spend management, and some key areas businesses should focus on when exploring spend management solutions.
What is Spend Management?
Spend management (also known as spend control) is the catch-all term used to describe the process of tracking, managing, and analyzing enterprise-wide expenditures.
The primary goals of spend management are to prevent unnecessary spending, maintain accuracy and organization throughout the entire billing lifecycle, and manage supplier relationships.
Why is Spend Management Important?
It Saves Money
Making money is a lot more exciting than saving money. However, don’t forget that savings opportunities can have just as big an impact on your bottom line. These cost savings can then be funneled into more productive activities like research and development, marketing, and hiring.
It Provides Insight
With organized expense data, companies have the transparency needed to identify and manage bottlenecks. This is especially important for a business looking to scale. Spotting and cutting costs by a few percentage points might not seem like much now, but it could have huge implications as you grow.
It Helps Maintain Compliance
Whether it’s tax season, preparing for an audit, or managing supplier contracts, tracking and documenting expenses is critical. Staying organized helps avoid penalties, maximize tax breaks, and keep suppliers happy.
What are the Risks of Poor Spend Management?
Disorganization
Without an ongoing effort to maintain clean data, orderly payment records, and overseeing expenses, it’s easy for things to get out of hand. Managing spending takes time and effort. Unfortunately, companies that are more focused on revenue growth often make spend management a lesser priority,
Increased Costs
This is a byproduct of disorganization. Without an established system for monitoring expenses, it’s easy for inefficiencies to go unnoticed. Strategic sourcing, contract management, and other cost-cutting efforts are ignored or simply not feasible.
Poor Supply Chain Management
As companies expand, their product lines, service offerings, and supplier relationships all become increasingly complex. Without real-time data and adequate spend visibility, organizations leave themselves exposed to breakdowns.
Subsequently, missed payments and delayed fulfillment are more common, damaging relationships with suppliers and customers alike.
Are You Properly Managing Your Spending?
There isn’t a perfect solution. Every business faces unique challenges, obstacles, and constraints. However, there are some standard practices that companies use to organize and analyze their spending.
A business looking to practice intelligent spend management should focus on three keys areas:
Automation
Invoicing, processing payments, and tracking transactions can be tedious. Whenever possible, these processes should be automated. Manual labor is slower, more costly, and prone to errors. So, it makes sense to reserve human capital for activities that require more complex problem-solving. This will further drive business growth.
Collect and Consolidate Spend Data
Spend analysis, a sub-category of spend management, involves collecting, cleaning, and categorizing expenditure data. It is through spend analysis that companies identify ways to lower costs and streamline the procurement process.
Tightening operations is only possible when data is properly cleaned, collected, and consolidated in one central repository. If possible, using the same spend management software to automate payments and store data makes spend analytics much easier and more accessible.
Forecasting
One of the primary goals of spend management is to prepare for the future. It’s important to position a business to operate efficiently and have the flexibility to adapt to changes in supply and demand. Properly organizing spend data and monitoring expenses makes this type of insight possible.
The Big Picture
It’s easy for expense management to get swept under the rug. It’s not as exciting as revenue-based activities. However, if neglected, it can become a major bottleneck. Addressing the issue starts with dedicating resources for monitoring, managing, and analyzing expenses.
It might feel counter-intuitive, but it costs money to save money. To properly manage spending requires investment. However, the short-term cost will pay dividends down the road and drive future business.
